Loss of reserves generates fear of outrage from the State

INFOBAE – The evolution of net reserves copied the electoral cycle. They were almost non-existent, at the end of the government of Cristina Fernández de Kirchner, in 2015. Under Mauricio Macri they increased to almost USD 30,000 million, during the autumn of 2018. Since then, they have been falling, along with the decline in employment and income of the population. The latest estimates have them back close to zero.

However, total reserves reach USD 41,000 million: BCRA has foreign exchange to continue delivering, to the extent that its owners allow it. The difference with the net position is the reserve requirements for dollar deposits in commercial banks and other movements, incoming and outgoing capital.

It should be noted that the BCRA has issued $ 2,404,600 million of the monetary base to cover its net purchases of foreign currency and fiscal deficits. At the end of 2019 they totaled $ 1,895,380 million. Analysts are looking closely at the amount at the end of this year and the next.

To the extent that the markets voluntarily give up dollars in exchange for pesos, the issue should not raise prices. But if the issue exceeds the demand, the desire to exchange them for goods and dollars is promoted, raising prices and the dollar, when the BCRA does not sell and makes access more expensive, to the extent that the markets voluntarily give up dollars in exchange for pesos , the issue should not raise prices. But if the emission exceeds the demand, the desire to change them is driven

The price of the dollar dances according to the population that needs to have more pesos or more dollars than those offered. The demand for pesos and dollars keeps pace with the population’s expectations regarding government actions. As they meet your individual needs, they generate confidence or discomfort. Thus, the price of the dollar is a thermometer of the conformity of the markets with the rulers. In this way, the republican system of government is as competitive as the population reacts.

Causes of financial instability

The State fails to fulfill its obligations too many times, with the complicity of part of the population. That instability derives from intertwined gazes. The first is the story that justifies not meeting financial commitments: the priority would be the “debt to the people,” they argue. As if that’s consistent with committing. They hide “it is the hindrance of the previous government.”

In primitive societies, the change of the chief canceled his commitments. The state emerged to secure them over time. Interestingly, those who insist on a strong state, fail to fulfill promises of previous governments.

Other causes are: 1) the lack of agreements to maintain reasonable and bankable expenses; 2) a currency that is no longer the unit of account; 3) uncertain property rights.

The repeated breaches of contracts reduced the size of the financial system. Argentine banks collect deposits for less than 15% of GDP; Chileans above 70%. Argentines have financial assets abroad that exceed 100% of GDP, more than three times those held in the country. The sources of uncertainty reinforce each other. Tolerating the abuse of officials opened them to falsify the price indices. Which buries the indexed credits, an option that could be.

The fact that the unit of account is the dollar, and not the legal tender, and the insufficiency of indexed loans means that longer-term debts are contracted in foreign currency. With this incentive structure, changes in confidence lead to violent exchange variations that volatilize the public debt / GDP ratio, imposing a major risk.

It is not surprising that the dollar is the unit of account and that Argentine assets take refuge abroad. Capitals that, to the extent that they entered and were well paid, would help expand production to satisfy the population. Breaks of rules and contracts severely impoverish us.

The financial outrages of officials accumulate dramatic devaluations of the peso, alterations of contracts, even declaring a public service retroactively, multiple exchange rates, corralitos, stocks, prohibitions, postponements of maturities, freezes and alterations of bank deposits, without the banks to protect them, fraud, including the nationalization of the AFJP, the private pension administrators. Nationalization carried out against the will of the alleged “beneficiaries”. In Chile, these entities finance the equivalent of more than 70% of GDP. Without rules, societies weaken, regress.

One consequence of the “sovereign” decisions is that a net public debt of barely 40% of GDP, before the crisis, was too risky for private institutions. Only public bodies, IMF, World Bank, IDB, China, and others can afford it. Another is that we have one of the highest persistent inflations on the planet. One consequence of “sovereign” decisions is that a net public debt of just 40% of GDP, before the crisis, was too risky for private institutions

Advanced nations maintain public debts greater than 100% of GDP, without alarming bondholders, who settle for negative interest rates; this is they charge the investor for the guarding of their capital. The superb ignorance, of generations of leaders, of the elementary rules to satisfy individual needs, explained in my book “For a More Just and Flourishing Country”, transformed a successful country into a decaying country and, now, inexorably growing poverty.

The whole Government / BCRA is a powerful distributor of costs and benefits, a compulsive redistributor of private assets. This is why so-called businessmen, operators and powerful people arouse so much resentment. Most of them enjoy the favors granted with regulations by friendly officials. Their fortunes do not come from satisfying the needs of the population. Confirming the country’s overwhelming qualification of low-quality institutions, poorly protected properties and corruption, measured by a constellation of prestigious international entities.

Argentines have extensive assets abroad. The BCRA estimates them at about USD 300,000 million (Reuters)

Argentines have extensive assets abroad. The BCRA estimates them at around USD 300,000 million. But when those of the governing entity are scarce, the risks of losses of the private companies in the country are sharply heightened.

The creditors that refinanced the Argentine debt lost a good part of their assets, a few days after it, confirming the increase in Argentine risk. The Government’s attempts to advance on Justice add uncertainty in the face of emerging conflicts.

Argentina seems like a deeply cracked country

The Government faces the needs of a large part of society, injecting instability, uncertainty, transience, in all its actions. In this way, it condemns the inhabitants to greater poverty.

Insurance companies monitor the behavior of their policyholders not to increase the risks of claims and impose fences on their actions. The automobile driver loses coverage if an accident occurs while crossing a red light or while intoxicated. Citizens should do the same with the acts of the State. Monitor, control, that officials comply with the laws and that they are compatible with the Constitution. That’s what the Supreme Court is for. When a government wants to withdraw from the Judiciary, it enters a zone of grave risk.